The Global South vs CBAM: Trade Barriers or Climate Justice?

The European Union's Carbon Border Adjustment Mechanism (CBAM) is being hailed as a groundbreaking climate policy in Brussels. But for developing countries that export carbon-intensive goods to the EU, CBAM represents something quite different: a potential barrier to economic development, a challenge to climate justice principles, and a technical compliance nightmare.

As CBAM transitions from its transitional reporting phase to full implementation in 2026, developing nations are grappling with profound questions: How can they maintain market access while lacking the resources for rapid decarbonization? Is CBAM a legitimate climate tool or disguised protectionism? And what strategies can help them navigate this new reality?

Understanding the Multifaceted Challenges

CBAM's impact on developing countries isn't just about carbon pricing—it's a multifaceted challenge that touches on economic development, technical capacity, and fundamental questions of equity.

Export Vulnerability and Economic Disruption

Many developing countries have built their industrial bases around carbon-intensive sectors like steel, cement, and aluminum. CBAM directly threatens these economic foundations:

• Export Cost Increases: Carbon fees add significant costs to already price-sensitive exports
• Reduced Competitiveness: Developing country exports may be displaced by developed nations with lower carbon intensity
• Industrialization Setbacks: CBAM could undermine planned industrial development strategies
• Trade Flow Realignments: EU imports may shift away from developing countries toward wealthier, lower-carbon producers

Infrastructure and Resource Limitations

Perhaps the most immediate challenge is the sheer technical complexity of CBAM compliance:

• Monitoring, Reporting, and Verification (MRV): Many developing countries lack the infrastructure and expertise for accurate emissions monitoring
• Carbon Pricing Systems: Only Ukraine among 70 low- and lower-middle-income countries has a functional carbon pricing system that could offset CBAM charges
• Financial Resources: High capital costs for decarbonization technologies and limited access to green financing
• Human Capital: Shortage of trained professionals in emissions accounting and verification

Historical Responsibility and Fairness Questions

Beyond practical challenges, CBAM raises fundamental questions about fairness and historical responsibility:

• Common But Differentiated Responsibilities (CBDR): CBAM appears to ignore the principle that developed countries bear greater responsibility for climate action
• Historical Emissions: Developed countries industrialized without carbon constraints; CBAM imposes costs on countries still developing
• Resource Diversion: Compliance costs divert scarce resources from adaptation and development priorities
• Trade Barrier Concerns: Many view CBAM as de facto protectionism disguised as climate policy

Country-Specific Impacts and Responses

Country/Region	Key Concerns	Strategic Response
India	Major exporter of CBAM-affected goods (especially steel); disputes WTO legality; argues CBAM hinders green transitions	Planning WTO challenge with China and South Africa; investing in decarbonization while advocating for policy adjustments
Turkey	Significant steel exports at risk; lacks robust domestic carbon pricing; faces full CBAM burdens	Investing in green technology and MRV capacity; limited options beyond compliance or diplomatic pushback
Mozambique	75% of CBAM-affected exports go to EU; potential 7% GDP impact; high decarbonization costs	Seeking EU technical support; exploring market diversification; considering emulation of CBAM standards
South Africa	Heavy reliance on coal-based industries; significant EU export exposure; capital constraints for transition	Joining WTO challenge; developing domestic carbon pricing; seeking technology transfer agreements

India's Diplomatic and Technical Strategy

As one of the world's largest steel exporters, India has emerged as a vocal critic of CBAM:

• WTO Challenge: India is coordinating with China and South Africa to challenge CBAM's WTO compatibility
• Protectionism Argument: Indian officials argue CBAM acts as a trade barrier that unfairly disadvantages developing economies
• Green Transition Concerns: India contends that CBAM diverts resources from domestic climate adaptation and mitigation efforts
• Dual Strategy: While challenging CBAM diplomatically, India is simultaneously investing in steel industry decarbonization

Turkey's Complex Balancing Act

Turkey's position is particularly complex, straddling developed and developing country status:

• Export Exposure: Significant steel and cement exports to the EU face immediate CBAM impact
• Carbon Pricing Gap: Lack of domestic carbon pricing means full CBAM charges with no offsets
• Limited Leverage: As a candidate for EU membership, Turkey has less room for confrontational approaches
• Investment Imperative: Must rapidly build MRV capacity and invest in green technologies

Africa's Disproportionate Burden

African countries face some of the most severe CBAM impacts relative to their economic size:

• Mozambique's Challenge: With 75% of CBAM-affected exports destined for the EU, the country faces potential GDP impacts of up to 7%
• Capital Constraints: Limited access to financing for decarbonization investments
• Capacity Building Needs: Require extensive technical assistance for MRV systems
• Development Trade-offs: Must balance CBAM compliance with pressing development priorities

Four Pathways for Developing Nations

Developing countries are pursuing various strategies to navigate CBAM's challenges:

1. Decarbonization and Compliance

The most direct approach: invest in reducing emissions and meeting CBAM requirements.

• Advantages: Maintains EU market access; positions for long-term competitiveness; aligns with global climate goals
• Challenges: High upfront costs; requires technical capacity; long implementation timelines
• Examples: India's investments in green steel; Turkey's renewable energy expansion

2. Emulation and Standard Adoption

Adopt CBAM-compatible standards and potentially implement domestic carbon pricing.

• Advantages: Retains carbon revenues domestically; demonstrates climate leadership; may facilitate EU cooperation
• Challenges: Requires sophisticated policy infrastructure; political challenges of carbon pricing; administrative complexity
• Examples: Countries exploring domestic carbon pricing to offset CBAM charges

3. Diplomatic Challenge and Negotiation

Challenge CBAM's legality and negotiate for more favorable terms.

• Advantages: May secure concessions or modifications; raises awareness of equity concerns; buys time for adaptation
• Challenges: Uncertain outcomes; may strain EU relations; doesn't address underlying competitiveness issues
• Examples: India-China-South Africa WTO challenge; diplomatic pressure for capacity building support

4. Market Diversification

Reduce dependence on EU markets by developing alternative export destinations.

• Advantages: Reduces CBAM exposure; builds resilience; may find markets with less stringent requirements
• Challenges: EU remains a premium market; alternative markets may have lower prices; doesn't solve long-term competitiveness issues
• Examples: Exploring increased trade with Asia, Middle East, and Africa

The Role of International Support

Effective CBAM implementation for developing countries requires substantial international support:

Technical Assistance Needs

• MRV Capacity Building: Training and infrastructure for emissions monitoring and reporting
• Verification Systems: Establishing accredited verification bodies
• Policy Development: Support for designing domestic carbon pricing mechanisms
• Technology Transfer: Access to low-carbon production technologies

Financial Support Mechanisms

• Green Climate Fund: Mobilizing climate finance for decarbonization investments
• Concessional Financing: Below-market rate loans for green technology adoption
• Technology Funds: Dedicated funding for clean technology deployment
• Capacity Building Grants: Non-repayable support for institutional development

Looking Ahead: Toward Equitable Climate Policy

The future of CBAM and its impact on developing countries will depend on several factors:

Critical Success Factors

For CBAM to be both environmentally effective and developmentally just, several conditions must be met:

1. Adequate Support: Developed countries must provide substantial technical and financial assistance
2. Flexible Implementation: Recognition of different development stages and capacities
3. Revenue Retention: Mechanisms allowing developing countries to retain carbon revenues through domestic pricing
4. Technology Access: Affordable access to low-carbon production technologies
5. Inclusive Dialogue: Genuine consultation with affected developing countries in policy refinement

The Broader Context

CBAM is likely just the beginning. Other major economies, including the United States, are considering similar mechanisms. This could lead to:

• Global convergence on carbon pricing and border adjustments
• Coordinated approaches among developed economies
• Increased pressure on all countries to decarbonize
• Potential for "carbon clubs" with preferential treatment for members

Balancing Climate Action with Development Needs

CBAM presents developing countries with a profound challenge: how to maintain market access and economic development while transitioning to low-carbon production without the resources that enabled developed countries' own industrial transformations.

The path forward requires more than just compliance—it demands a fundamental rethinking of how global climate policy can advance environmental goals while respecting development needs and historical responsibilities.

For developing countries, the strategic imperative is clear: engage proactively with CBAM while advocating for equitable implementation. This means simultaneously investing in decarbonization, building technical capacity, seeking international support, and ensuring that climate policy doesn't become a new barrier to development.

For the international community, CBAM is a test: Can we design climate policies that are both environmentally effective and developmentally just? The answer will shape not just trade flows, but the future of global climate cooperation.